OPEC members cheat, prices rise anyway
Whatever the ministers of OPEC decide at their meeting in Vienna, this much is for certain: OPEC production has been rising for weeks now, even as prices approach a record.
Reuters says hardliners like Iran and Venezuela see no need for a production boost, but the Saudi Arabians, Kuwaitis and others are leaning toward an increase of a half-million to one-million barrels per day.
An increase of around 500,000 bpd on top of current OPEC supplies would do something to placate consumer nations without flooding the market and causing a price collapse.
It would also unwind most of the 1.7 million bpd of OPEC cuts agreed since October 2006 because the 10 states subject to output restraint are already pumping nearly 1.0 million bpd above their 25.8 million bpd limit.
Yes, surprise surprise, OPEC members are cheating on their production quotas — just as they have for decades. And those Reuters numbers are verified elsewhere:
OPEC’s actual output has been creeping back up over the past two months, as compliance with quotas weakens. A Dow Jones Newswires survey Tuesday found that the 10 OPEC members subject to quotas pumped nearly 27 million barrels a day last month.
So let's say the production target is boosted. Does that mean the cheaters effectively stop cheating — or do they cheat more and actual production goes up, not just the target number? (Update: It's the latter, evidently.)
And more to the point, does it make any difference? If oil prices have been rising the whole time OPEC output has been rising, is demand outstripping supply even as supply grows? That's the real story that's getting lost amid the speculation of what's going on behind closed doors in Vienna.
Additional update: As if in answer to my complaint, Bloomberg's lede on the day's events strikes exactly the right tone:
Crude oil rose to a record close of $78.23 a barrel in New York on speculation that OPEC's agreement to increase production by 500,000 barrels a day will be insufficient to meet strengthening demand.